CHICAGO (CBS) — Former Ald. Edward Vrdolyak pleaded not guilty Tuesday to an indictment accusing him of tax evasion charges tied to money he allegedly collected from a tobacco lawsuit settlement he never actually worked on.

Vrdolyak, 78, has been charged with one count of income tax evasion and one count of impeding the Internal Revenue Service, according to an indictment unsealed last week. His arraignment was scheduled for 9:30 a.m. Tuesday before U.S. District Judge Amy St. Eve. Vrdolyak was allowed to remain free on $20,000 bond.

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Federal prosecutors have alleged Vrdolyak schemed with two attorneys to get a cut of legal fees from the state of Illinois’ lawsuit against tobacco companies in the 1990s, despite not being authorized to work on the case and doing no work on the lawsuit.

Vrdolyak — who earned the nickname “Fast Eddie” for his reputation for working backroom political deals while steering clear of criminal charges while he was a four-term alderman from 1971 to 1986 — allegedly worked out a deal to collect up to $65 million in legal fees from the tobacco case, although the charges do not specify how much money he actually was paid, or how much income tax he failed to pay.

The indictment comes 18 months after co-defendant Daniel Soso was charged with income tax evasion for allegedly failing to pay nearly $780,000 in federal income taxes from 1993 through 2013.

Vrdolyak was not named in that indictment, formally added as a co-defendant earlier this month, according to a superseding indictment unsealed on Tuesday.

The new indictment alleges an unnamed “Individual B” — who was a partner in a Washington state law firm that helped represent the state of Illinois in its lawsuit against several tobacco companies in the late 1990s — agreed to pay Vrdolyak $65 million from legal fees from the case, even though Vrdolyak did not work on the lawsuit.

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According to the indictment, Vrdolyak also made an agreement with Soso to share the money he received from “Individual B.” According to federal prosecutors, Soso failed to pay taxes on the money he received, and in 2005 and 2006 the IRS served a notice to Vrdolyak that any money still owed to Soso should be paid directly to the IRS. However, Vrdolyak allegedly stopped paying Soso and falsely told the IRS he didn’t owe Soso anything.

Meantime, Vrdolyak allegedly made arrangements for Individual B to pay money due to Soso directly, and Soso concealed the money by depositing it in accounts held by his relatives and girlfriend. Then, from 2010 to 2011, Vrdolyak arranged for Soso to be paid $170,242 in proceeds from the tobacco lawsuit, according to the indictment.

The most serious charge against Vrdolyak carries a maximum sentence of 5 years in prison.

Defense attorney Mike Monico said there was no reason for the feds to press charges, because the case does not involve Vrdolyak’s tax returns, and the disputed money has been put in escrow for the IRS.

“We’re very disappointed that the government’s seen fit to bring these charges against Mr. Vrdolyak. He’s going to be 79 next month, and that’s obviously a very sad part of the case,” Monico said after Vrdolyak’s arraignment. “We expect to defend the case vigorously. This case does not involve Mr. Vrdolyak’s tax returns. This only involves Mr. Soso’s returns. We have money in escrow for that. The government knows that. The government knows we’ve been keeping it there for approximately two years, and for whatever reason they’ve still seen fit to indict us.”

Vrdolyak was previously convicted of another federal crime. In 2008, he pleaded guilty to mail fraud, after admitting to scheming with businessman and convicted scam artist Stuart Levine to split a $1.5 million payoff to arrange the sale of a Gold Coast building.

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A judge originally sentenced Vrdolyak to probation, but prosecutors appealed the original sentence, and a different judge gave Vrdolyak 10 months in prison in 2011, and fined him $260,000.